It provides a snapshot summary of the total income and expenses for that period. It is also commonly known as an ‘income statement’. It will show a profit if income is greater than expenses, and a loss if expenses are greater than income.

All limited companies that are trading must prepare an annual P&L account to comply with company law. Self-employed sole traders, and partners in an ordinary business partnership, do not have a legal obligation to produce an annual P&L account but will need the information it contains to complete their self-assessment tax return.

The P&L account forms a key part of the annual financial statements of a business and should be viewed alongside the balance sheet to assess the financial performance and strength of a business. See our guide, Understanding Balance Sheets for more information.

This factsheet outlines what information is typically covered in a P&L account and explains the commonly used terms. It looks at how the P&L account can be used to help manage a business and reviews some of the limitations of P&L accounts.